At the gates of Halloween the Federal Reserve (FED) is ready for trick or treat. The trick will obviously be the current account holders to receive it. In fact, a 25 basis point cut in the cost of money is expected, which will bring interest rates in the range from 1.5% to 1.75%.
Trick or Treat from FED
New cuts in US interest rates are coming from the Federal Reserve. This further cut in rates is due to the fear of a slowdown in the global and American economic situation and due to the trade war between the US and China, which continues to cause very important damage.
In the event that the Fed decides to further cut the cost of money, it would be the third time in a year.
At the July Fed meeting, where interest rates had just been reduced, Governor Jerome Powell announced that the cut a few months ago had occurred for the first time in 10 years and there was nothing to worry about.
On the contrary, the investors did not agree with the Fed governor. In fact, sales on Wall Street broke out on July 31st, plunging the index by many percentage points.
All other events in favor of gold
The price of gold in this situation could increase further. The historical record signed by the yellow metal last September found support on 12 September just when the European Central Bank acted in the same way as the Fed. In fact, it decided to cut interest rates on deposits from -0,4% to -0.5%. The ECB itself, in order to try to plug the water leaks that were spreading everywhere, has also decided to start financing the debt for an equivalent of 20 billion dollars, in order to avoid a recession on a European scale.
The huge rise in the price of gold in September was also caused by heavy damage caused to a very important oil plant located in Saudi Arabia following a missile attack. The aforementioned attack has virtually eliminated 5% of the entire global oil supply. If we want to be even more clear how grotesque the situation is, we need to talk about the event that took place on September 17th. During an overnight market downturn, there was a lack of liquidity to manage the combination of tax maturities and the closure of a US Treasury auction.
Such a surreal situation to the point of pushing Joe Foster, VanEck‘s portfolio manager and strategist – an important New York investment company – to wonder who still continues to invest in US assets in a context dominated by impeachment chaos, systemic stress and fiscal irresponsibility.
To worse the situation already in itself critical are the accusations that the President Donald Trump pours to the Fed, giving the impression of a sort of civil war in progress.
President Trump said: “Europe and Japan have negative rates. Shouldn’t we follow our rivals? Yes we should, but the Fed has no idea. We would have unlimited potential but we are held by the Fed”.
How will gold react to this?
Meanwhile, physical gold traders are looking forward to today’s evening. If interest rate cuts are confirmed, gold should rise to $ 1,520 / ounce, confirming and consolidating an extremely positive trend. The following trend, at this point, is destined to continue for a long time. If this trend is confirmed in the coming weeks, gold could also make a big leap forward in terms of yield in 2020. The continuing uncertainties rooted in investors and the economic events of the coming weeks will surely be an excellent opportunity for further increases.
EDIT: after the cut in US interest rates last night (10/30/2019), as expected, the price of gold benefited a lot. During today’s morning (10/31/2019) gold is in fact trading at $ 1499 / ounce, touching the wall of $ 1500.
“Gold is the sovereign of the sovereigns” – Rivarol